Alfonzo's Italian House has 17,000 shares of stock outstanding with a par value of $1 per share and a market price of $24.60 a share. The firm just announced a stock split of three-for-two. What will be the market price per share after the split?

Question

Quizplus · Accepted Answer

After a three-for-two stock split, each shareholder will have 3 shares for every 2 shares they held before. This increases the number of shares by a factor of 1.5 (3/2). The total number of shares will become 17,000 * 1.5 = 25,500. Since the value of the company doesn't change due to a stock split, the market price per share adjusts so that the overall market capitalization remains the same. The new price can be found by dividing the old market price by the split factor (1.5). Therefore, the new market price per share is $24.60 / 1.5 = $16.40.

Alfonzo's Italian House Has 17,000 Shares of Stock Outstanding with a Par